Tories warn of "run on the pound" risks

LONDON (Reuters) - Prime Minister Gordon Brown's plans to borrow more to cope with a deepening recession could lead to the collapse of sterling and a slower recovery from the economic turmoil, a senior opposition figure said.

In an interview with the Times published on Saturday, the Conservative Party's economic affairs spokesman George Osborne accused Brown of adopting a "scorched earth" policy that will wreck the economy for future governments.

"We are in danger, if the government is not careful, of having a proper sterling collapse, a run on the pound," Osborne said as Brown and other world leaders gathered in Washington to discuss the crisis. "The danger of that is that it pushes up long-term interest rates."

Osborne could become the next chancellor if the Tories were to win the next election, due by May 2010. Polls put the Conservatives ahead of Labour, although the gap has narrowed in the last month.

Commentators said it was unusual for politicians to talk about the possible collapse of a currency as it breaks an unwritten political convention.

The pound fell to a 13-year low against a basket of currencies on Friday, including a record low against the euro, on expectations that Britain will cut interest rates again to try to boost its ailing economy.

The global financial crisis has battered the economy in recent months, pushing unemployment to its highest level in more than a decade and hammering house prices and retail sales.

Companies including BT, Royal Bank of Scotland and Virgin Media have all announced thousands of job cuts.

Brown, a former chancellor whose once dire poll ratings have picked up during the financial crisis, has urged world leaders to provide a co-ordinated fiscal stimulus to help economies recover from the worst turmoil since the 1930s.